Goldman's Take On Bernanke's "NEW QE" Speech

While it appears to us that Bernanke's message was loud and clear, there are those who need validation and peer-confirmation. Such as that from the firm whose alumni run the Fed, namely Goldman Sachs. Below is Jan Hatzius' take on the "surprising" Chairman speech which essentially said QE can and will come at any time there is a downtick in the market, masked by the unemployment rate rising to its fair value, as estimated by Gallup, somewhere around 9%.

From Goldman Sachs:

BOTTOM LINE: Fed Chairman Bernanke argued that the outperformance of labor market indicators recently may reflect a “catch-up” from unusual weakness in jobs during the recession. By implication, continued declines in unemployment will require faster GDP growth in the future. He also continued to argue that most of the increase in long-term unemployment is cyclical rather than structural in nature. Chairman Bernanke’s read on the state of the labor market was consistent with an accommodative stance for monetary policy—though he did not directly call for additional easing.

MAIN POINTS:

1. Federal Reserve Chairman Ben Bernanke spoke on recent labor market developments before the annual meeting of the National Association for Business Economics (NABE) today. His comments focused on two aspects of the current debate on the labor market: (1) the outperformance of labor market data relative to GDP growth; and (2) how much of the increase in long-term unemployment reflects cyclical rather than structural factors.

2. Chairman Bernanke discussed three alternative explanations for the better performance of labor market indicators recently. First, the surprisingly large drop in the unemployment rate may reflect statistical noise, and that GDP could be revised higher in the future. However, he said that there is no specific evidence to support this conclusion at this point, and in fact Gross Domestic Income (GDI)—an alternative measure of aggregate activity—was weaker than GDP over the last year. Second, the decline in the unemployment rate could be overstating the improvement in the labor market, as the drop partly reflects potential workers exiting the labor force. However, Chairman Bernanke argues that the decline in broader measures of labor underutilization (he cites the BLS’s U-5 measure) casts doubt on this explanation. Third, the large decline in the unemployment might reflect “a catch-up from outsized job losses during and just after the recession”. Chairman Bernanke ultimately finds this argument most compelling, and presents some simple supporting evidence.

3. The chairman’s comments on the recent decline in the unemployment thus cut two ways. On the one hand, the drop in the unemployment rate is likely a real and encouraging development. On the other hand, because the outperformance compared to GDP likely reflects a catch-up from past weakness then, in Chairman Bernanke’s words, “further improvements in unemployment will likely require faster economic growth than we experienced during the past year”.

4. The second portion of the Chairman’s speech focused on whether the increase in long-term unemployment reflected cyclical or structural factors. Consistent with his existing views, Chairman Bernanke argued that elevated structural unemployment is mostly a cyclical phenomenon, and that structural factors can explain only a small (and possibly temporary) part of the increase.

5. On monetary policy, the Chairman said that faster growth—perhaps needed to see further declines in unemployment—“can be supported by continued accommodative policies”. He also argued that because the increase in long-term unemployment was primarily cyclical, “then accommodative policies to support the economic recovery will help address this problem as well”. These statements were not necessarily calls for additional easing, but they clearly supported the Fed’s current accommodative stance.

Bernanke is trying to use employment as distraction to justify accomodative policies that simply will not address the underlying issues of long-term unemployment. Even Uncle Ben himself admitted that we are not likely to grow ourselves out of this problem-- though his prescriptions suggest totally the opposite.

Here's the reality: the Fed desperately needs to suppress the long end of the Treasury curve-- or the government's debt and interest burden becomes unmanagable. An additional round of QE could be justified if deflation was abundant... but it isn't. I think that the only thing that really matters to the Fed at this point is to prevent a possible government debt implosion.

Why? Because the Fed fully endorsed the concept of unprecented deficit spending (and the explosion of debt that went with it) in the first place.

So... it appears once O-Twist 1.0 winds down in June, we get (at least) O-Twist 2.0.

I'll say it again, since nobody seems to remember.... Rational Expectations Theory! The public knows the difference between real growth and fake sugar high growth created by monetary policy and reacts differently to each scenario.

Man the shit must REALLY be bad behind the curtain if they have to come out with daily QE rumors, and now 'Perma QE'? Just these anytime you see a slight downtick so now the markets are teflon coated bulletproof?

4. The second portion of the Chairman’s speech focused on whether the increase in long-term unemployment reflected cyclical or structural factors.

So this is the Chairman wondering whether companies are going to throw out the super efficient, 24hr working, no strikes, mistakes or vacation taking machines that they just installed to replace those silly and inefficient humans?

"The stock market went down a bit last last week. This is deflation and this aggression will not stand. It must go up every day and every week, or I will print more money and debase the currency even more to give the appearance that my policies are working. Having destroyed the housing and bond markets in enormous bubbles, it's the stock markets turn to make everything appear great. It's had it's 10 year rest and it's time."

The real Trayvon was a 6’3?, 160 pound, 17-year-old football player with gold teeth and multiple tattoos who posted to Twitter as “No Limit Nigga.” He was in Sanford because he had been suspended from high school in Miami. The real Trayvon attacked George Zimmerman from behind, knocked him to the ground, and had broken his nose and was beating him when Zimmerman shot and killed Trayvon in self defense.

Zimmerman is not a racist, pointing out that he and his wife mentored for two black children for free. "When I asked this mother [of the mentees], who trusted [Zimmerman and his wife], and she's an African-American, if she trusted George Zimmerman, she said she did, and I asked her if there was anything that caused her to believe that she was a racist, and she said, 'Absolutely not.' And I said, went further, 'Did you ever hear him use racial slurs in any time that you'd been around him?' And she said, 'no' as well," Also the fact the Zimmerman mentored two blak kid for free will never crack the surface.

So fuck the truth, reason and logic Amerika... some people know the path to get what they want and they are facillitated by the media and government that believe it should be taken from us.

The only thing I can't reconcile is why Zimmerman continued to follow Trayvon after he was repeatedly told by the 911 operator NOT to do so. I suspect what happened was that Trayvon thought he was about to be jumped, so he turned the tables and jumped Zimmerman first. Zimmerman may have shot him in self-defense, but if he had stopped following as he was told, it never would have happened.

Just watched a show where the 911 operator told a lady not to follow a car with a screaming girl in the back seat who was shortly thereafter killed. The ladies report of the screaming girl was never forwarded to police.

911 operator in our community sued for not being able to take micro naps.

Personally spoke with a 911 operator before?They are not geniuses. I wouldn't trust most of them for a second. They drop the ball all the time

Fuck the 911 operator, not likely anyone can protect anything if you are told "return to your home and leave the thug alone"...Why bother with a watch program if the gubmint on the phone tells you "just let it happen, we will take care of it"..being they can't take care of shit?

Protect from what? Zimmerman by all accounts was following Martin without Martin even knowing at first. That means there is no defense or need for defense. It also means use of force is premeditated, opening up more serious murder charges. The videos now show there were no injuries as stated by police & by Zimmerman so that's falsifying evidence (false police report).

Oh and I forgot --- The Permanent Income Hypothesis (thank you Milton F). I'll give you money now but promise to take it back later ==> Saving of "free money" so that it can be returned when called upon.

Why don't they just make a lottery for the bills in existence and refuse to honour the numbers that come up. That way you'll have to spend as much as you can as fast as you can (Gresham's Law) to make sure you don't end up with "retired" paper.

QE3. That makes sence... Since QE1 and QE2 (+ other accommodative measuremens) has not worked so far, i.e they have not helped unemployment to declaine, we just need to do more QE's and even in large scale as before...

After May QE3 appears political and it less likely. Maybe Ben is right!! After $14 trillion in worldwide central bank stimulus and nearly everyone warning that the "sky is falling", the dollar is strong, interest rates keep falling to record low, jobs are created and inflation (ex war related oil) is low. So why not more stimulus??? Oh yes, we are slowly becoming more and more dependent on Ben for our freedoms. As long as the FED has the "pedal to the metal" there are no "black swans" in sight.

"The BLS' fraudulent seasonal adjustments to unemployment have outpaced the more modestly fraudent adjustments made by the BEA to GDP. As we continue through the reelection season, I mean summer, expect the fraudulent GDP numbers to rise more in line with the fraudulent unemployment numbers."

I don't know where I should post this but I just got an alert from Chicago Jewelers Alert about tungsten filled gold bars being found recently. Apparently the bars matched their stated weights but for some reason were suspect and cut in half which revealed the drilled holes and filling.

That is what I thought originally as well when the email came across but this was reported in New York. As it turns out the information in the email led me to believe this was a different event. After following through it is the same story as previously reported on ZH. I apologize.